TAX DEPRECIATION SCHEDULES

How a Tax Depreciation Schedule will help lower your taxes considerably

What is a tax depreciation schedule?

Under current legislation in Australia, if you purchase an asset for the sole purpose of earning a living, you are allowed to claim deductions against your taxable income.

If you’re a property investor, a Tax Depreciation Schedule details the depreciation of your investment property, informing your accountant of the amount to claim.

Probably the easiest (and often neglected) way to minimise your tax is through a Tax Depreciation Schedule, where it’s not uncommon for us to see an investor better off by at least $20k over the life of their investment loan.

Many people are under the misconception that depreciation is only claimable on new properties and this is simply not true.

By reducing your taxable income, we can help you create a greater return on your investment.

How does a TDS Improve your tax/cash flow?

The amount of depreciation deductions an investor can claim is dependent on 2 main factors. The historical cost of the structural elements of the building, plus the value of the plant and equipment assets.

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1. Rules for Capital Costs DIV43

Capital costs or construction costs is the cost to build, extend or renovate a building. This doesn’t include the cost of the land or soft landscaping.

Rates of depreciation are determined by:

  • Type of building lease arrangements (Residential – Short and long term, Commercial),
  • The year the construction was made.

Put simply, any construction that was built after 18th July 1985 can be depreciated at 2.5% (or in some cases – 4% if the construction was carried out in a certain time frame).

2. Rules for Plant and Equipment DIV40

This include items like:

  • Stove
  • Window coverings (curtains and blinds)
  • Floor coverings (carpet, floating timber/vinyl)

The effective life of any depreciable asset is the length of time (in years) the asset depreciation entitlements are fully claimed over.

Case study

See below the impact a tax depreciation schedule can have on a Person with Tax Depreciation Schedule vs Person without.
CLICK HERE

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RESULT:

In the above example, the person that did a tax depreciation schedule, benefitted by $3,569 in the pocket.

Imagine the effect of this over 10 years?

The easiest way to help you understand this is:

  • REPAIRS – are an immediate tax deduction
  • IMPROVEMENTS – are depreciable over their specified effective life.

 DID CLAIM DEPRECIATIONDID NOT CLAIM DEPRECIATION
INCOME
Wage income$70,000$70,000
Tax paid$14,297$14,297
Rental income$30,000$30,000
Total Income$100,000$100,000
TAX DEDUCTIONS
Interest$22,000$22,000
Repairs$1,000$1,000
Rates$2,000$2,000
Insurance$1,000$1,000
DEPRECIATION $11,000
TOTAL DEDUCTIONS$37,000$26,000
Taxable Income$63,000$74,000
Tax on Taxable Income$12,022$15,597
REFUNDRefund of $2,269Owes an additional $1,300 in tax